Our London Correspondent Nick Ayton, the ‘Sage of Shoreditch,’ has been speaking to the Bitcoin core community about the politics and power struggles that will impact SegWit decision-making.
What happens to Bitcoin holders in the weeks ahead? What will be the consequences of SegWit for the user community and what does it mean to Bitcoin as a cryptocurrency and the role of miners? Is the economic model for Bitcoin being forced to change as the investment in POW infrastructure remains significant and where are the rewards declining?
Is SegWit really about control?
This article is not intended to go into the technical of SegWit (for more information see SegWit explained). Suffice to say the big topic since Bitcoin’s increase in popularity is the underlying performance of the network, or is this nothing more than a smoke screen to that masks an inevitable power struggle as the few that hold the old values of centralisation want to control it.
Having spoken to the community, read their blogs and posts and sat in forums, from what I can make out, SegWit is a battle of wills.
It’s a fight between the independent purists that don’t want change and want to keep the network closely aligned to the original Satoshi vision, versus the move by the enterprise thinking that is looking to concentrate power (hashing power) and force decisions to improve the economic model.
SegWit is a battle that will not only challenge the very ethos of Bitcoin from the founding Nakamoto roots but may ultimately split the community into several parts.
Will SegWit make Bitcoin more vulnerable?
Against a backdrop of a huge increase in volumes and drop off in transaction processing times it will come as no surprise to learn that for an intelligent, opinionated and evangelical network of Bitcoin market participants will never agree on the future direction Bitcoin. Many were unhappy with the NYC agreement, while other hold strong views and want to stay close to the original 2008 Satoshi script.
Some including Dr. Craig Wright, believe SegWit will open the door to manipulation by mining cartels.
Let us also not forget the network remains vulnerable to 51 percent attack and is designed to make sure the economic incentives do not deliver the returns to make it worthwhile.
Craig Wright who claims to be the founding father is not alone in believing SegWit opens the door for cartels to manipulate the network using an “AnyOneCanSpend” address essentially leaving the signature (witness) blank relying on all miners to play nicely and not steal funds. He claims that self-interest will eventually override social cooperation as the network grows and the amount of larger transactions increases , and that new mining pools could come in at essentially a discount with illicit intentions.
But is there a darker side to this story as alleged co founder Alexandre Cazes of AlphaBay is found dead in a Bangkok jail, and law enforcement agencies cracking down on similar sites that use the TOR Darkweb network? However, the most significant impact is the large volume of BTC transactions have simply disappeared.
This is the main reason why the purists want to take a different path and why they feel the entire Libertarian concept behind the Bitcoin network is being highjacked. And they may have a point…
The enemy within
But then nothing in the world of Bitcoin throughout its short history has ever been straightforward or simple. For many people who use and hold Bitcoin, they may not realize the network is constantly under attack and the core developer community have to keep coming up with new ideas and ways to protect the integrity of Bitcoin and police its use.
Although the biggest attacks appear to come from the enemy within.
The politics of the miner community, in particular, is hard to fathom but also plays a significant part in the SegWit story.
For a long time concerns have been raised about the concentration in hashing power centered on the larger mining pools where the economic investment from the corporate world many believe has already distorted Bitcoin from its original path.
And it is clear SegWit will add to the debate and increase concerns for many involved driving their decisions and Bitcoin in new directions.
Others sense the hand of government manipulation that hide off grid also using the dark shadows of TOR, who have in recent months attempted to discredit Bitcoin and blame the community for WannaCry outbreak, which started as a US government Windows-hacking program.
There are many communities and dare I say factions emerging within the community that breaks down into many different groups listed below that highlights some of the different forces that are at play Source CoinDance…
Although the detail of ownership is missing one has to remember the fundamental ethos of Bitcoin is that you get trust. This is because there is no trust of network participants as each has very separately economic alignment and why BGP was built into the protocol to prevent collusion and distortion. SegWit takes this away.
Bitcoin Core equates to 78 percent of the network (6740 nodes)
Bitcoin Unlimited 15 percent (918 nodes)
Bitcoin UASF 5.5 percent (474 nodes)
Bitcore 1.5 percent (134 nodes)
Bitcoin Classic 1.5 percent (128 nodes)
Bitcoin Knots 0.6 percent (58 nodes)
Bitcoin ABC 0.65 percent (54 nodes)
Bitcoin XT 0.36 percent (31 nodes)
Btcd 0.23 percent (26 nodes)
Bcoin 0.23 percent (20 nodes)
TRB 0.1 percent (9 nodes)
Libbitcoin 0.07 percent (6 nodes)
Could we end up with multi Bitcoin Wallets?
It very much looks like we will have to get used to multiple Bitcoin wallets each supporting different features, different Bitcoin networks where the processing of transactions will be handled differently.
Depending on what wallets you have today – lightweight, web wallet or full node these changes will impact you the User. And its seems you do have to upgrade.
But of course what we all really want to know is what happens to the value of our Bitcoin (BTC) - will it go up or down, or is there a chance we could lose it all?
But SegWit is a soft fork so in the short term this remains unlikely but forces are at work where this may be inevitable. Many will go UAHF anyway.
There are so many questions - How will transactions be processed, will they be quicker? Will transaction costs increase?
In the SegWit transition period will transactions fall through the gaps and be lost, rejected or end up on a long backlog list?
Stirring the pot
And while these questions are looking for an answer the Bitcoin haters led by the VC community and other dark forces continue to ‘stir the pot’ and put the boot in creating additional and unnecessary market concerns that have contributed to BTC price drop in recent weeks.
The stories of impending doom have forced profit taking and for many amateur BTC investors have spooked them to a point where they have got out completely.
So what is going on behind the scenes in the Bitcoin community in relation to SegWit?
The first thing to consider is how the SegWit decision will be made. Should the miners agree to get behind SegWit, it will require 95 percent of the networks Hashrate to push it through. Yes, you read it right, 95 percent of the Hashrate to ‘lock in’ SegWit as essentially the network upgrade.
That doesn’t mean 95 percent of individual Nodes and Miners but the concentration of Hashing Power- that supports the concern by some in the community of an enterprise led takeover…
And then the Full Nodes run by users and business need to adopt it to be upgraded to Bitcoin core v0.13.1 and why the soft fork is designed to allow community users to decide whether they want to adopt SegWit voluntarily.
And there you have it – consensus decision making. But is it really a consensus or will a handful of votes just be the deciding factor.
But at the end of the day does any of this matter?
Isn’t the important thing here the underlying performance of the Bitcoin network and its integrity remains true and honest to ensure its future, to maintain the core principles of Bitcoin as the ‘peoples network’?
Or is it about speed and performance and low transaction fees? And of course, its price continues to rise as the scarcity model enters the last stretch of new Bitcoins being mined.
Or is the real issue that you cannot have both worlds coexisting, a stable true Bitcoin network true to its origins and a scalable payment network where the economics of investing in infrastructure have to be adjusted to make it viable?
It is worth remembering SegWit started a year ago in July 2016 and by November 2016 didn’t achieve ‘lock in’ and the same thing may happen again.
And in between Bitcoin Unlimited tried to gain support and failed.
But it is unlikely SegWit to continue past August where the likely outcome appears Bitcoin will be going in several directions all at once, or will it. And then there is SegWit2…
Impact on users
Should SegWit be adopted? What will be the impact on users, requiring a wallet that supports sending and receiving SegWit payments supporting a new SegWit address that starts with a ‘3’ (known as a P2SH address) that some wallets today already support?
SegWit transactions should happen quicker. You will probably end up paying lower transactions fees, alongside the current (non SegWit) Bitcoin because the part of the transaction that contains your signature (the “witness”) doesn’t need to be accessed by the Bitcoin network immediately, effectively batching and aligning the costs in terms of transaction fees to create the block.
If you want to stay with the non-SegWit wallet, it should still be able to transact with the users that have upgraded but then to be sure you should upgrade even though you want to stay traditional? Differences will mean it is likely the transaction may not appear until after it has been mined. So don’t hold your breath.
The Miners’ favorite
The Mining pools have their favorites. SegWit2x (intention), SegWit (BIP141) are leading contenders and so the complexity and importance of the decision remains less than straightforward given most Miners also don’t just mine Bitcoin. They strategically want to be best placed to commercially benefit from POW investment in infrastructure as the rewards reduce over time.
So where will it all end? As some in the Bitcoin community suggest, we could at least see four Bitcoin networks or even five, and then there are overlays such as Lightning…
Ultimately the bigger chains win the day and wallets will support as they do now different payment options where the user will decide the fate of their transaction, traditional and/or 10-minute block refresh, that may adjust as the remaining network re-sizes.
Bitcoin isn’t going anywhere and SegWit no matter what your opinion, is after all a ‘soft fork.’ However, there are forces at work that may be trying to move Bitcoin from its core principles as the People’s Network, the Internet of Money, trusted, fair and transparent to a darker place.
It is inevitable the old thinking of greed and fear will try to turn Bitcoin into a mechanism for a few to make money. For me, as a Libertarian, this is my main concern and must never be allowed as we will be back to square one.
As Fractional Reserve Banking implodes and central banks continue to print too much money and countries like Japan with -245 percent GDP to debt will never catch up, Bitcoin is the future and may be the only financial system that works as the next crisis emerges from the US once again.
It is likely price volatility will increase as we await the outcome of SegWit and for Bitcoin users, there will be some adjustment required as different wallets are needed for different purposes. But your BTC remains safe for the time being and price should start to move in the right direction through August.
The transition period will be tricky. Traditionalists are intent on standing their ground behind the current network, and where the enterprise movement will favour the economics of SegWit, albeit they may have sensible intentions may open the door to collusions, further concentration of power and new cartels entering the network the result of which is sure to create a Hard Fork event…
Stand by your beds. The story of Bitcoin is going to get more interesting, more dramatic and why we are making a mini series about it called “21Million” as this story has to be told…